In computing “net income” of taxpayers under this part, no deduction shall be allowed for the items specified in this article.

No deduction shall be allowed for both of the following:

deductible under Section 616 of the Internal Revenue Code.

allowance is or has been made.

Section 263A of the Internal Revenue Code, relating to capitalization and inclusion in inventory cost of certain expenses, shall apply, except as otherwise provided.

Section 264 of the Internal Revenue Code, relating to certain amounts paid in connection with insurance contracts, shall apply, except as otherwise provided.

the amount paid or incurred would constitute income to the insurer if the insurer were subject to the California income or franchise tax.

(ii) Interest paid or incurred to an insurer with respect to a note or other debt instrument (other than qualified marketable debt instruments) contributed to the capital of an insurer with respect to its stock by a noninsurer member of the commonly controlled group.

(iii) For purposes of this subparagraph, “qualified marketable debt instruments” means publicly available debt instruments of all noninsurer members of the commonly controlled group issued, but only to the extent that the aggregate principal amount of publicly available debt instruments held by all insurer members of the commonly controlled group constitutes less than 10 percent of the total outstanding principal amount of publicly available debt instruments issued by all noninsurer members.

(iv) For purposes of this subparagraph, “publicly available debt

instruments” means debt instruments available to the general public, including bonds, debentures, and negotiable instruments (as defined in Section 3104 of the California Commercial Code) that are rated by a nationally recognized statistical rating agency (as that term is used in Rule 15c3-1(c)(2)(vi)(F) under the Securities Exchange Act of 1934) in one of its generic rating categories that signifies investment grade.

100 percent less the percentage described in paragraph (1), (2), or (3) of subdivision (c) of Section 24410 (as the case may be) for that taxable year whether or not a dividend is paid or accrued.

transaction in which gain was realized but not recognized (including for this purpose any income deferred under Section 24465) by the taxpayer or a member of its commonly controlled group.

controlled group” shall have the same meaning as that phrase has under Section 25105.

Amounts paid or accrued for such taxes and carrying charges as, under regulations prescribed by the Franchise Tax Board, are chargeable to capital account with respect to property, if the taxpayer elects, in accordance with such regulations, to treat such taxes or charges as so chargeable.

Section 267 of the Internal Revenue Code, relating to losses, expenses, and interest with respect to transactions between related taxpayers, shall apply, except as otherwise provided.

Section 267A of the Internal Revenue Code, relating to certain related party amounts paid or accrued in hybrid transactions or with hybrid entities, shall apply.

Section 276 of the Internal Revenue Code, relating to certain indirect contributions to political parties, shall apply, except as otherwise provided.

The amendments made by Section 13304 of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) to Section 274 of the Internal Revenue Code, relating to limitation on deduction by employers of expenses for fringe benefits, shall not apply.

acquires, or acquired on or after October 8, 1940, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation;

and the principal purpose for which such acquisition was made is evasion or avoidance of tax under this part by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then such deduction, credit, or other allowance shall not be allowed. For purposes of this subdivision, control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the

corporation.

(A) There is a qualified stock purchase by a corporation of another corporation,

(B) An election is not made under Section 24519 with respect to that purchase,

(C) The acquired corporation is liquidated pursuant to a plan of liquidation adopted not more than two years after the acquisition date, and

(D) The principal purpose for that liquidation is the evasion or avoidance of tax under this part by securing the benefit of a deduction, credit, or other allowance which the

acquiring corporation would not otherwise enjoy,

then the Franchise Tax Board may disallow that deduction, credit, or other allowance.

distribute, apportion, or allocate the deductions, credits, or allowances the benefit of which was sought to be secured, between or among the corporations, or properties, or parts thereof, involved, and to allow those deductions, credits, or allowances so distributed, apportioned, or allocated, but to give effect to that allowance only to the extent which it determines shall not result in the evasion or avoidance of tax under this part for which the acquisition was made.

(A) A political party.

(B) A national, state, or local committee of a political party.

(C) A committee, association, or organization which accepts contributions or makes expenditures for the purpose of influencing or attempting to influence the election of presidential or vice presidential electors or of any individual whose name is presented for election to any federal, state, or local elective public office, whether or not such individual is elected.

deposit, or gift, of money, or anything of value, and includes a contract, promise, or agreement to make an expenditure, whether or not legally enforceable.

(commencing with Section 750) of Chapter 1 of Part 2 of Division 1 of the Insurance Code; and deductions shall not be allowed to any taxpayer on any of its gross income derived from any other activities which directly tend to promote or to further, or are directly connected or associated with, those acts or omissions.

shall be applied with respect to taxable years that have not been closed by a statute of limitations, res judicata, or otherwise as of September 14, 1982.

applicability of this section, the housing has not been repaired or brought to a condition of compliance within six months after the date of the notice or the time prescribed in the notice, whichever period is later.

“Substandard housing” also means employee housing that has not, within 30 days of the date of the written notice of violation or the date for compliance prescribed in the written notice of violation, been brought into compliance with the conditions stated in the written notice of violation of the Employee Housing Act (Part 1 (commencing with Section 17000) of Division 13 of the Health and Safety Code) issued by the enforcement agency that specifies the application of this section. The regulatory agency may, for good cause shown, extend the compliance date prescribed in a violation

notice.

notify, in writing, the Franchise Tax Board of the noncompliance.

the taxpayer a fee in an amount not to exceed the regulatory agency’s costs incurred in recording any notice of noncompliance or issuing any release of that notice. The notice of compliance shall be recorded and shall serve to expunge the notice of noncompliance. The notice of compliance shall contain the same recording information required for the notice of noncompliance. No deduction by the taxpayer, or any other taxpayer who obtains title to the property subsequent to the recordation of the notice of noncompliance, shall be allowed for the items provided in subdivision (a) from the date of the notice of noncompliance until the date the regulatory agency determines that the substandard housing has been brought to a condition of compliance. The regulatory agency shall mail to the Franchise Tax Board and the taxpayer a notice of compliance, which notice shall be in the form and include the information prescribed by the Franchise Tax Board. In the event the period of noncompliance does not cover an entire

taxable year, the deductions shall be denied at the rate of1/12for each full month during the period of noncompliance.

to the Franchise Tax Board if any of the following occur:

financing to bring the housing into compliance with those laws or codes that have been violated, causing the housing to be classified as substandard.

total or partial divestiture of interest in the property, immediately notify the regulatory agency of the name and address of the person or persons to whom the property has been sold or otherwise transferred and the date of the sale or transference.

issued pursuant to subdivision (c).

to the Franchise Tax Board where the notice is actually sent to the Franchise Tax Board.

The exception provided in this subdivision covers only substandard housing consisting of abandoned or unoccupied dwellings involved in the federally related transaction.

Section 277 of the Internal Revenue Code, relating to deductions incurred by certain membership organizations in transactions with members, shall apply, except as otherwise provided.

or

corporation only, if cause (ii) does not apply, or

(ii) Both the issuing corporation and the acquired corporation, in any case where the issuing corporation has acquired control (as defined in Section 24564), or has acquired substantially all of the properties of the acquired corporation.

(B) The average annual earnings referred to in subparagraph (A) is, for any corporation, the amount of its earnings and profits for any three-year period ending with the last day of a taxable year of the issuing corporation described in paragraph (1), computed without reduction for—

(ii) Depreciation or amortization allowed under this part,

(iii) Liability for tax under

this part, and

(iv) Distributions to which Section 301(c)(1) of the Internal Revenue Code, relating to property distributions, applies (other than such distributions from the acquired to the issuing corporation), and reduced to an annual average for such three-year period pursuant to regulations prescribed by the Franchise Tax Board. Such regulations shall include rules for cases where any corporation was not in existence for all of such three-year period or such period includes only a portion of a taxable year of any corporation.

or finance business of such corporation, as the case may be;

reductions under subparagraph (B) for such period.

For purposes of this paragraph, the term “lending or finance business” means a business of making loans or purchasing or discounting accounts receivable, notes, or installment obligations.

of any taxable year of the issuing corporation, it shall be corporate acquisition indebtedness for such taxable year and all subsequent taxable years.

indebtedness for each of any three consecutive taxable years thereafter if paragraph (4) of subdivision (b) were applied as of the close of each of such three years, then such obligation shall not be corporate acquisition indebtedness for all taxable years after such three consecutive taxable years.

of subdivision (b) only if immediately before such transaction (1) the acquired corporation was in existence, and (2) the issuing corporation was not in control (as defined in Section 24564) of such corporation.

the members of the affiliated group in the aggregate as the issuing corporation, except that the ratio of debt to equity of, projected earnings of, and annual interest to be paid or incurred by any corporation (other than the issuing corporation determined without regard to this subdivision) shall be included in the determinations required under subparagraphs (A) and (B) of paragraph (4) of subdivision (b) as of any day only if such corporation is a member of the affiliated group on such day, and, in determining projected earnings of such corporation under paragraph (3) of subdivision (c), there shall be taken into account only the earnings and profits of such corporation for the period during which it was a member of the affiliated group. For purposes of this section, the term “affiliated group” has the meaning assigned to such term by Section 1504 of the Internal Revenue Code except that all corporations other than the acquired corporation shall be treated as includable corporations and the acquired

corporation shall not be treated as an includable corporation.

obligation or indebtedness of such issuer in applying any other provision of this part.

parent-subsidiary controlled group, as the issuing corporation, to the extent the repurchase price exceeds an amount equal to the adjusted issue price plus a normal call premium on bonds or other evidences of indebtedness which are not convertible. The preceding sentence shall not apply to the extent that the corporation can demonstrate to the satisfaction of the Franchise Tax Board that such excess is attributable to the cost of borrowing and is not attributable to the conversion feature.

provided.

In computing net income no deduction shall be allowed for (a) abandonment fees paid in respect of property on which the open-space easement is terminated under Section 51061 or 51093 of the Government Code or (b) tax recoupment fees paid under Section 51142 of the Government Code.

In the case of the demolition of any structure—

with respect to the land on which the demolished structure was located.

Section 280H of the Internal Revenue Code, relating to limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years, shall apply to taxable years beginning on or after January 1, 1989, except as otherwise provided.

Section 274 of the Internal Revenue Code, relating to the disallowance of certain entertainment, gift, travel, etc., expenses, shall apply, except as otherwise provided.

The Franchise Tax Board may disallow a deduction under this part to an individual or entity for amounts paid as remuneration for personal services if that individual or entity fails to report the payments required under Section 13050 of the Unemployment Insurance Code or Section 18631 on the date prescribed therefor (determined with regard to any extension of time for filing).